Commentary

V7.352 Partial exemption—standard method simplification measures

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.352 Partial exemption—standard method simplification measures

Part V7 Tax planning | Commentary

V7.352 Partial exemption—standard method simplification measures

HMRC issued Revenue & Customs Brief 19/09 (RCB/19/09, Division V16.3) and VAT Information Sheet 4/09 (V16.945, Division V16.5) in March 2009 to explain important changes in relation to businesses that use the standard method. The aim of the measures is to simplify the partial exemption calculations for a business, ie to produce administrative savings in many cases. The new procedures took effect from 1 April 2009 and included three optional measures and a fourth measure that is compulsory.

The three optional measures are as follows:

  1.  

    •     A provisional input tax recovery percentage can be adopted throughout the tax year, based on the previous year's annual adjustment calculation.

  2.  

    This recovery percentage will be relevant to input tax claims on expenses where some taxable and some exempt use is evident (ie residual input tax). The actual recovery percentage will then be established when the annual adjustment calculation is made at the end of the tax year.

  3.  

    Example – ABC Ltd uses the standard method and reclaimed 75% of its residual input tax in the year to 31 March 2014. It will reclaim the same percentage of residual input tax in relation to VAT returns submitted during the year to 31 March 2015. It will then calculate its annual adjustment for the year and reclaim additional input tax if the percentage of taxable income exceeded 75%, ie the provisional recovery rate was too low. It will repay tax to HMRC if the percentage of taxable income was less

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